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Tax Efficiency
As CPAs, we are well aware that income taxes are the greatest cost of investing. The design and management of an investment portfolio can have dramatic effect on the impact of taxes.
There are several reasons why taxes can be minimized under our portfolio management:
- Passive mutual funds have inherently low turnover of securities within the fund, thus minimizing capital gain distributions.
- Many of the funds we use are "tax managed" so as to further reduce the tax consequences of distributions.
- When both taxable and tax-deferred accounts are managed for a client, we are careful to allocate the most tax efficient asset class investments to the taxable account and the least tax efficient asset classes to the tax deferred account.
- We actively "harvest" capital losses to apply against capital gains during the year.
- We maintain accurate and detailed tax basis information for all investments purchased so that when part of the portfolio needs to be liquidated, we can select from higher tax basis investments.
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